A leading mortgage broker has warned that the increasingly impractical nature of bank credit decisions could be detrimental to borrowers over the next three years.
Speaking to The Adviser, Go Mortgage director and principal Xavier Quenon explained that consumers could be left worse off as a result of unreasonable changes in bank lending.
“A deal used to be hooked on servicing and valuation,” Mr Quenon said. “Those were the two pillars, which are still there, but servicing has become more complex because of living expenses. There are compulsory expenses and discretionary expenses and all the banks have a different point of view.
“We are finding more and more mortgage prisoners because the rules have changed, not because their situation has.”
The Queensland-based broker, whose business was awarded Regional Office of the Year at the 2018 Australian Broking Awards last month, recently attended a FAST PD Day where the future of broking was the topic of discussion.
“We were talking about what the industry will look like in 2020: brokers, lenders, the type of advice and how we provide that,” Mr Quenon explained.
“The Productivity Commission, Sedgwick and the ASIC remuneration review, while no longer topical, are the changes that are coming. The royal commission will deliver its results in 2019.
“Between this year and 2020, we need to implement what is or was decided from the Productivity Commission and Sedgwick report. What will the industry look like once that has been implemented?”
At the FAST PD Day, brokers were presented with a case study involving applicants who wanted to do a renovation, were business owners and were planning on having children.
“It came down [that] what we should really do is look at how the loan will service with one income, two incomes, with or without kids,” the principal said.
“How are we supposed to do that? Will it be one income, or is it two? Will they have one child or three? With the new credit guidelines, that’s how it’s starting to go. No one really knows what will become the new norm.
“Unfortunately, because of government policy, some of these things are just impractical. The victims will be the ones we are supposed to protect in the first place — the consumer.”
While banks tighten their lending policies in response to ongoing scrutiny and regulatory pressure, bigger shifts in the lending landscape could also present problems.
Last week, Deloitte financial services partner Paul Wiebusch questioned what impact the introduction of comprehensive credit reporting (CCR) and open banking would have on higher-risk customers.
“You can see what will happen for those who are lower-risk customers, who might be paying more than they need to at the moment,” Mr Wiebusch said.
“But at the other end of the risk spectrum, will this have an implication for higher-risk customers and potentially a desire to increase pricing for higher-risk customers?”
Mr Wiebusch warned that if lenders start to hike rates for higher-risk customers in an environment where the ACCC and ASIC are already looking into rate setting, there could be serious issues.
“You are also seeing a heightened focus on conduct-related issues,” the financial services partner said. “This has implications for some of the strategic options for organisations as they look at their pricing responses.”
Deloitte believes that financial institutions need to look at all three components of their pricing framework: profitability, price elasticity and customer lifetime value.